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An ExxonMobil oil refinery, the second largest in the U.S., is pictured on February 28, 2020 in Baton Rouge, Louisiana. (Photo: Barry Lewis/InPictures via Getty Images)

Shareholder Engagement With Fossil Fuel Companies Is a Failure for Climate Change

Shareholder engagement promotes the image of fossil fuel companies as good corporate citizens, and strengthens their political power to fight climate legislation.

Carlos Davidson

What should pension funds, university endowments and other institutional investors do to help address climate change? The fossil fuel divestment movement calls on funds to divest from fossil fuel companies. Fund owners and managers often oppose divestment, preferring "shareholder engagement"—that is, owning fossil fuel company stocks and voting at shareholder meeting and urging companies to change. While shareholder engagement with fossil fuel corporations on climate change is well intentioned, I will argue that it harms rather than helps efforts to address climate change.

Shareholder engagement is detrimental to winning needed government climate action

This is exactly opposite the strategy of divestment, which aims to weaken the political power of fossil fuel companies by calling them out as bad actors, and thereby win climate legislation.

The pace and magnitude of emissions reductions needed to respond to the climate crisis will not come from voluntary actions by companies, but only from strong government regulations, programs and public investments. Shareholder engagement is aimed solely at getting companies to change and does nothing to get needed government climate action. Tariq Fancy is BlackRock's former chief investment officer for sustainable investing. He writes in BlackRock hired me to make sustainable investing mainstream. Now I realize it's a deadly distraction from the climate-change threat that "Only governments have the wide-ranging powers, resources and responsibilities that need to be brought to bear on the problem." The perception that shareholder engagement is moving companies to address climate change weakens public support for the need for government action. Fancy calls sustainable investing a "deadly distraction" and argues that it is "harming the world by creating a societal placebo that delayed overdue government reforms."

More importantly, shareholder engagement promotes the image of fossil fuel companies as good corporate citizens, and strengthens their political power to fight climate legislation. This is exactly opposite the strategy of divestment, which aims to weaken the political power of fossil fuel companies by calling them out as bad actors, and thereby win climate legislation. Former SEC commissioner Bevis Longstreth in Climate Change and Investment in Fossil Fuel Companies: The Strategy of Engagement Won't Work explains it this way:

"Indeed, engagement is likely to assist Big Oil and Big Coal in postponing the day when governments limit the burning of fossil fuels. The International Energy Agency reckons that, if governments act to compel adherence to the carbon budget, necessary to have a chance of holding the planet to only a 3.6 F rise in temperature from pre-industrial levels, it will cause Big Oil and Big Coal to lose about $1 trillion a year. Engagement with institutional investors like Harvard gives the fossil fuel giants the protective cover they need to stretch out the transition process to renewables for as long as they can. It legitimizes talk over action."

Despite decades of shareholder engagement, the fossil fuel industry continues to be the most powerful obstacle to government action on climate change. The fossil fuel industry has been the main funder of climate denier organizations, and the industry funds and lobbies politicians against climate policy. A recent CNN news headline is painfully illustrative "Big Oil goes all out to defeat Biden climate rules in Build Back Better plan." The story reports Exxon alone spent at least $1.6 million in less than a month on Facebook ads against the Build Back Better plan that have been viewed 31 million times.

Shareholder engagement does not work to change company's core business models

While shareholder engagement can be successful at pushing companies to make changes such as adding more women to boards of directors, it does not work to get companies to change their core business model. Former SEC Commissioner Bevis Longstreth says:

"Thus, for example, trying to convince Phillip Morris to give up making cigarettes or Johnny Walker to abandon its distilleries will most certainly be a fool's errand….It is for this reason that divestment became the tool of choice in addressing tobacco companies. And companies heavily engaged in profitable businesses in South Africa under apartheid. In regard to fossil fuel companies directly engaged in extractive activities, it is unrealistic to imagine them being swayed by shareholder arguments to get out of their core business of exploring for, extracting and selling carbon-emitting fuel."

In the 2000s oil giant British Petroleum rebranded itself as "Beyond Petroleum" It made some limited investments in clean energy, and put a new sunflower logo on its gas stations. It did little else, and eventually dropped the clean energy investments and rebranding. Fossil fuel companies explore for, extract, and process oil, gas and coal, none of which sets them up to manufacture windmills or solar panels or otherwise be clean energy producers. We are 50 years into the clean energy transition and no major fossil fuel company has become a major clean energy producer.

Even when shareholder engagement wins corporate climate pledges, they are often little more than greenwashing

With shareholder engagement, unlike with government regulation, there is no accountability and enforcement to ensure that pledges (often for 30 years in the future) result in real emissions reductions. Even worse, a recent study, Towards Net Zero, by accounting giant KPMG found that of the world's top 250 companies making net-zero commitments (typically to reduce net GHG reductions to zero by 2050) 83 percent did not have concrete plans to actually achieve emissions reductions. There are many other problems with net zero commitments such as lack of short and medium term emission reduction goals, and the use of dubious carbon offsetting schemes, like tree planting and carbon capture, rather than direct emissions reductions. Al Gore has warned that without short and medium term reduction goals, and direct emissions reductions, net zero commitments amount to greenwashing.


Given the many failings of shareholder engagement, fossil fuel divestment is a better strategy for climate change. The aim of the fossil fuel divestment movement, like the anti-apartheid and tobacco divestment movements before it, is to raise awareness, stigmatize a powerful political opponent and win changes in government policy. The University of Oxford, Stranded Assets Program studied a number of divestment movements and concluded that almost all had been successful in stigmatizing their targeted industry and ultimately winning restrictive legislation.

Our work is licensed under Creative Commons (CC BY-NC-ND 3.0). Feel free to republish and share widely.
Carlos Davidson

Carlos Davidson

Carlos Davidson is a professor of Environmental Studies at San Francisco State University

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